Adidas reported a large first-quarter loss on Friday, admitting that its split from controversial US rapper Kanye West was “hurting” its bottom line.
From January to March, the company lost 39 million euros ($43 million), compared to a profit of 482 million euros the previous year.
The end of its highly successful Yeezy line, designed in collaboration with West, resulted in sales of approximately 400 million euros in the third quarter.
However, overall sales were not as bad as expected, with analysts seeing early signs of improved fortunes, and Adidas’ share price rose 7.5 percent on the Frankfurt Stock Exchange in the afternoon.
Adidas ended its relationship with West, now known as Ye, in October after he made a series of anti-Semitic comments.
The loss of Yeezy, as well as declining revenues for its lifestyle brands, “are of course hurting us,” according to new CEO Bjorn Gulden in a statement.
But there was no word on Friday about what it planned to do with its massive stock of Yeezy sneakers.
“The options are narrowing,” Gulden told reporters after the results were released, but finding a solution will take time because “so many interested parties” are involved.
The company announced in February that if it decides to write off the value of its entire existing Yeezy inventory, it could incur an operating loss of up to 700 million euros this year.
– ‘Bumpy year’ –
Gulden, who took over the company in January after leaving rival Puma, said it would take time to turn things around.
“2023 will be a bumpy year with disappointing numbers, where maximizing our short-term financial results is not our goal,” he predicted.
The impact of the West tie-up was most visible in North America, where sales dropped 20% during the quarter.
They were also down significantly in China, a key market for Adidas that has been severely impacted by lengthy Covid lockdowns, while gains were seen in Latin America and other parts of Asia-Pacific.
However, net sales were almost flat at 5.28 billion euros, despite market expectations for a drop, and Gulden stated that the quarter ended “a little better than we had expected.”
He mentioned some positive developments, such as the popularity of its Samba, Gazelle, and Campus trainers.
In a research note, Deutsche Bank stated that the sportswear company “remains an appealing large-cap turnaround story, and despite a difficult few quarters ahead, these early signs are reassuring.”
“This is a business that has regained some of its energy.”
